Oil above $125, supply concerns support

LONDON | Tue Mar 27, 2012 6:31am EDT

LONDON (Reuters) - Oil held above $125 a barrel on Tuesday, boosted by supply concerns amid tightening Western sanctions on Iran although expectations for an increase in U.S. crude inventories dampened sentiment.

Tension over Iran and supply disruptions in Syria, South Sudan and Yemen have supported oil prices this year.

On Tuesday, South Sudan said neighboring Sudan's air force had bombed the main oilfields in Unity state as violence between the two escalated.

Brent crude eased by 11 cents to $125.54 by 6.06 a.m EDT after rising as high as $125.88 earlier in the session. U.S. crude was up 19 cents to $107.22.

"The price of oil is likely to continue to find it hard to exceed the $126-a-barrel mark," said Carsten Fritsch, oil analyst at Commerzbank. "This increases the potential for correction if financial investors see themselves forced to take profits. That said, any significant price slump is unlikely in view of the risks to supply."

Oil and other risk assets drew support from comments by the U.S. Federal Reserve on Monday indicating easy monetary policy would remain in place for some time.

Fed Chairman Ben Bernanke said the U.S. economy needs to grow more quickly if it is to produce enough jobs to bring down the unemployment rate and this process can be supported by continued accommodative policies.

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PDF of Iran reports: link.reuters.com/duf27s

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Brent crude has risen about 17 percent so far this year on concern about supply disruptions from Iran as well as the actual outages in Syria, South Sudan and Yemen.

Diplomatic sources said on Tuesday Iran and six world powers are expected to resume in the next few weeks long-stalled talks about the Islamic state's disputed nuclear program.

Closer to home for Brent, Total (TOTF.PA) shut down oil and gas production from its North Sea Elgin platform on Sunday following a gas leak. Oil from the field is exported through the Forties pipeline.

Forties is the largest crude stream underpinning Brent futures and two oil trading sources said Total's Elgin-Franklin site has been providing about 60,000 barrels per day (bpd) to Forties.

Supply reports this week are expected to show a rise in U.S. crude stocks. The first report is due later on Tuesday from the American Petroleum Institute. <EIA/S>

A Reuters survey of five analysts produced an average forecast of a 2.8-million-barrel increase. All five forecast a rise in stockpiles.

(Additional reporting by Florence Tan and Francis Kan; editing by Jason Neely)